Tag: Business Owner

Alex, a sole trader, has been unable to calculate his business’ profit or loss for the year ended 31 December 2023 as a fire destroyed most of his accounting records.

He has, however, been able to provide the following information to his accountant.

(1) Net assets at 31 December 2022 were £23,000 and £32,500 as at 31 December 2023

(2) Alex introduced additional capital during the year of £4,000 in cash

(3) He took cash drawings of £2,500 and goods with a selling price of £800. The cost of the goods was £750 when purchased.

What was Alex’s profit or loss for the year ended 31 December 2023?

Select ONE answer:

1. £8,750 profit
2. £(1,750) loss
3. £9,800 profit
4. £(2,750) loss

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Opening capital £23,000 + Capital injection £4,000 – Drawings (£2,500 + £750) £3,250 = £23,750 == > Difference to Closing capital of £32,500 is profit = £8,750
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

A local taxes prepayment of £475 at the reporting date for his financial statements was treated as an accrual in preparing Alex’s a sole trader’s income statement.

As a result, Alex’s profit was?

Select ONE answer:

1. Understated by £950
2. Overstated by £950
3. Understated by £475
4. Overstated by £475

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Understated by 2 x £475 = £950
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex is a sole trader prepares financial statements each year to 31 May.

His rent is payable quarterly in advance on 1 January, 1 April, 1 July and 1 October.

Local property taxes are paid each year in two equal instalments on 1 April and 1 October.

His annual rental for the calendar years 2022 and 2023 was £4,800 and £5,400 respectively but on 1 January 2024 this was increased to £6,600 per annum.

Local property tax for the last three years has been as follows:

•Year commencing 1 April 2022 – 3,600

•Year commencing 1 April 2023 – 3,900

•Year commencing 1 April 2024 – 4,500

In preparing his financial statements for the year ended 31 May 2024, the charge to the profit and loss account from his rent and local property tax account would be what for Alex?

Select ONE answer:

1. £9,900
2. £10,100
3. £10,200
4. £10,300

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – £4,000 tax +£5,900 rent = £9,900 == > Rent 1June 2023 to 31 December 2023 = 7/12 x £5,400 + 1 January 2024 to 13 May 2024 = 5/12 x £6,600 = £5,900 + Local property tax 1 June 2023 to 31 March 2024 = 10/12 x £3,900 + 1 April 2024 to 31 May 2024 = 2/12 x £4,500 = £4,000
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.